Microsoft Corp at Goldman Sachs Technology and Internet Conference (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Absolutely. What a pleasure. And I noticed that you're a computer science undergrad, and you are a Microsoft lifer. And explain to us, if you don't mind, how you started out being a [quarter], if you will, and then all the way up to running worldwide commercial sales, which is the single most interesting business at Microsoft. Every business is interesting, but this is the one that is front and center. It's the biggest business, the fastest-growing business. It's a center of attention. How did you -- how was your progression like going from [computer science back to this]? Congratulations.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Absolutely. I mean it's really remarkable that you are in the worldwide commercial sales organization, and you have such important responsibilities. I guess having been a former engineer, still -- I suppose you're still an engineer, you'd see tremendous credibility when you speak with customers. So what's on customers' minds these days? Does the availability of a vaccine changing things to do with customer priorities and maybe it doesn't? What are your thoughts there?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. Corey, if you could just put a finer point on it, what kinds of projects are getting prioritized versus -- is it the IT budget? Is it certain finite thing? We make room for something, you got to eliminate room for something else. What is going up, what is coming down, given your broad perspective running commercial sales for the company?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. Got it. So I suppose it's positive for analytics, business intelligence, Power BI, those kinds of products, right?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. Got it. When you look at the pipeline of commercial business, maybe you want to characterize it on a year-over-year basis or sequentially, maybe more useful to look at it sequentially because the economy is hopefully improving sequentially fairly rapidly. At least according to Goldman Sachs economics team, we're calling for U.S. GDP to accelerate to about 10% or so in Q2, some of the highest forecasts out there. So as you look at your pipeline today, how does it look relative to say, 3 months back or 6 months back or 9 months back?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. If you could, Corey, just look at an average customer or the profile of an average customer. When they are doing digital transformation with Microsoft, I mean you've got a $67 billion, $68 billion run rate business growing 34%. What are the products they're picking and choosing from the Microsoft family under the banner of digital transformation? And what is the outlook for those kinds of products going forward? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 10, 2021 / 8:40PM, MSFT.OQ - Microsoft Corp at Goldman Sachs Technology and Internet Conference (Virtual)

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. And then to the piece of the business that everybody wants to talk about, Azure. How did the name Azure come about? I'm just kidding. That's not the question. But...

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Cloud computing. Yes.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. And it took a while for people to really start to, "Oh, you know what? This is real. This is actually real." We had -- I don't know if you remember Bob Muglia. He presented with us in 2009. He talked about Azure for the first time. We were, "What is he talking about?" Well, 11 years later, here we go. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 10, 2021 / 8:40PM, MSFT.OQ - Microsoft Corp at Goldman Sachs Technology and Internet Conference (Virtual)

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : You did? No way.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Wow, that's amazing.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Amazing. I have to pick your brain on Snowflake because he used to be at Snowflake later. But I do want to ask you about Azure. Azure looks like it's the turn in the business in this quarter, which was a very pivotal quarter. It's such a big business. What -- and it's almost generic to ask what is driving that reacceleration. You probably answered 90% of it. But if I want to just get a little specific, what is causing that reacceleration in Azure? And how sustainable is this terrific growth rate that you guys have put up?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : The amazing thing is that as big of a business as it is, every time we speak with Microsoft, we get the sense that more and more of that growth is driven by new workloads, whereas -- we've been trying to think that it's a migration. It's a transition. You take that whole thing to your point, lift and shift, right? How much of that is still around because I'm looking at Microsoft having been in the server business for 25 years, you've got a massive, massive install base. You've got a big market share, right? Does that ever start "moving to the cloud" at some point?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. At one point in time, the 2 tracks were going sort of parallel with cloud development and the on-prem, then you had this thing about Azure Stack, which I still remember when I heard about Azure Stack, I said, "This is brilliant because you could bridge the old world with the new world upgrading to Azure Stack." And what you're saying is actually even more positive for the type of the cloud business because if you're still seeing a lot of our on-prem business, those workloads are going to be loyal to Microsoft for a lot longer period of time. So when they do make that decision to go to the cloud, it's you that it's going to benefit, right?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : It just occurred to me that you would have a viewpoint on databases in the cloud, which alone, that alone could be a 30-minute conversation, so fascinating. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 10, 2021 / 8:40PM, MSFT.OQ - Microsoft Corp at Goldman Sachs Technology and Internet Conference (Virtual)

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : But maybe we should talk about it, right? I mean I'm not going to ask you. But I'm fascinated that, that segment of the market, you still have some big companies there. But you guys have really turned that business around committing to the cloud in a significant way. And you're seeing the benefits of that in improved market share, whatnot. What is your prognostication? You get benefit -- you're a computer science undergrad from Princeton. You have the credentials, the street cred to be able to have a viewpoint on this. How do you see databases in the cloud? And how is Microsoft positioned for that future that could be potential really?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : That's great. We started pondering and writing about databases in the cloud about a decade back or so. So it's great to see the excitement. What opportunities do you have for competitive market share gains, displacement of legacy databases? Is that something Microsoft's giving attention to? Because that's a big, big market out there. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 10, 2021 / 8:40PM, MSFT.OQ - Microsoft Corp at Goldman Sachs Technology and Internet Conference (Virtual)

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : On the earnings call last month, the company talked about $10 million-type transactions for Azure and Microsoft 365. When you speak with customers, how are they thinking about Microsoft being positioned in their cloud road maps? And how strategic is Azure becoming to their road map to the cloud, if you will?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. Got it. How competitive is the market? I mean, now you've got 3 big companies, 2 in addition to Microsoft. Is it really the pie becoming larger or Microsoft getting more share of the pie? How do you think about this dynamic, competitive dynamic?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. In the few minutes that we've got left, I just want to get your thoughts on Office 365. What inning are we in the transition from old Office to Office 365 prem? Or maybe the market opportunity has gotten bigger, we should not be thinking about the transition of the old versus new? How would you level set us on that aspect?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. There's really only one other company that does this, the collaboration aspect, not the video conferencing, which got acquired by Salesforce.com. Any thoughts on how we should be looking at Microsoft's differentiation with Teams vis-a-vis a Slack or maybe a Zoom or RingCentral? Any thoughts there?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. So I know the market likes to look at -- or at least financial markets like to look at the subscriber growth rate, installed base growth, et cetera of Office 365. How much more room is there for adding more subs in the next few years or many years?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. As you mentioned, frontline worker, I could not help but think that the pandemic has been unusually harsh on the frontline worker, right? As we get through a vaccine, these frontline workers come back. I mean it's got to be a positive for your business because you've been talking about the F1 SKU, what not for quite some time. Do you think that the turn of the frontline worker is a good incremental positive for Microsoft?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. Curious to get your thoughts, how customers are thinking about their collaboration, communication strategy going forward, especially with vaccines being distributed? Are we going to collaborate less because hopefully, we come out of the pandemic? Or how does that behavior change or not change? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 10, 2021 / 8:40PM, MSFT.OQ - Microsoft Corp at Goldman Sachs Technology and Internet Conference (Virtual)

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. Got it. On the earnings call, Microsoft talked about a percentage point benefit from COVID-related savings to your bottom line. Do you -- when you talk to customers, are they experiencing such savings? And what are they planning to do with these savings? If you have a view on that.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : So Microsoft talked about COVID-related savings for the company's bottom line, right? So when you talk to customers, do they experience such savings just probably because their T&E...

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. Well, on that exciting note, I just want to say a big thank you for this high octane, high energy, high enthusiasm presentation. Really, really enjoyed it, and it's awesome to discover that you actually worked with Bob Muglia back in 2009, and you had a big role to -- in shaping up Azure. And once again, thank you for taking the time to be with us. Really appreciate your commitment to Goldman Sachs.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : I love databases. While we're finishing up, I just wanted to share with you, you heard the term PaaS and IaaS, right? First, we had SaaS. So my contribution, if there's anything that I've done for the industry is to come up with PaaS and IaaS. It's a true story.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : So 2007, we -- what do you call this thing? The cloud. Oh, they want to -- Gartner already has this thing called SaaS. What about PaaS? So...

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : I know. I'm very sorry about that.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : (inaudible)

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Have a lovely day. Thanks so much, Corey. Bye-bye.